Bitcoin Fundamentals – Briefing February 2019
Keeping abreast of the crypto markets, in this month’s briefing, we’ll take a look at what has happened in the last 30 days. Technically, this was the most boring period ever! Only now is activity returning to the market.
Given that the market was flat for almost the entire month, there have been no dramatic developments in any of the major driving factors, no big breakout moments. Nevertheless, certain events ought to be mentioned.
In recent months, the crypto sphere has been revolving around two major information clusters: first, institutional investment and all that that entails – regulation, ETFs, big bank participation, and so on; second, well-known analysts’ views on the future of cryptocurrencies, and Bitcoin in particular. In this report, we will follow up on these topics.
I. Institutional Investors, Regulation, and Big Banks
Let’s begin with the most positive news and the likely reason for BTC’s recent rally. The first jump took place on February 8 [the article was published on February 12] and came as a total surprise – even I put a question to the forum in an attempt to discover the possible reasons. Now it seems that we know the reason, or one of them at least:
Morgan Creek Digital made what it says is probably the first investment in the crypto asset sphere from a US pension fund. Two pension plans in Fairfax County, Virginia, have become anchor investors in a new $40 million venture-capital fund, according to a statement by the company. Other investors include an insurance company, a university endowment, and a private foundation, said Morgan Creek Digital founder Anthony Pompliano, who declined to provide further details.
The Virginia pension funds join a handful of institutions to invest in crypto, including Yale University, the second-largest endowment in higher education that invested in a digital assets fund last year.
We should emphasize here that the important thing is not in the sum invested but the investment itself.
Molly Shea, general manager of Asia Pacific for Western Union, said that WU has to be technically ready for a potential rally of cryptocurrencies. She was speaking in particular about WU experiments with Ripple and its xRapid technology, which is based on the XRP token.
JP Morgan Chase will be the first major US bank to create its own cryptocurrency. In trials set to begin in a few months, a tiny fraction of the $6 trillion the bank lends to corporations will be carried out with the so-called “JPM Coin.” Created by engineers at the New York-based bank, the coin will instantly settle payments between clients. Equal to $1, this fixed-price coin operates on a private blockchain used only for client transactions with no links to the market.
The possible implications of this rollout for crypto investors were discussed on CNBC’s “Squawk Box.” The event is seen as significant since JP Morgan serves 80% of companies on the Fortune 500 list. It’s also noteworthy that banks like Mitsubishi (MUFG Coin) and Mizuho intend to do the same in Japan.
JPM Coin and other bank altcoins could significant impact Ripple and its XRP token, which is made for fast cross-border transactions. The reality is, however, that much remains to be seen.
Increase in ATM crypto machines
ATM Coin Radar reports that the number of crypto ATMs has increased by 720% in the last three years. At the moment, there are approximately 4,723 crypto ATMs in existence with the service of each machine bringing in roughly $3000 per month.
This dynamic growth speaks to the interest in cryptocurrencies around the world among everyday people.
Lichtenstein Post, in partnership with Swiss Värdex Suisse AG, is launching Bitcoin selling and intends to add more cryptocurrencies to their list.
Austrian Post did the same thing in 2017, and now it’s possible to use crypto in more than 1,800 post offices across the country.
In a recent report, the Central Bank of Chile criticized cryptocurrencies, maintaining that they are too young and that the perspectives of this market are a blur. The report also points out that the market is thin, and that crypto lags significantly behind fiat money since transaction speeds are too slow. The report also argues that cryptocurrencies could hardly replace traditional money in the near future.
Reality Shares ETF Trusts, a division of Blockforce Capital, has withdrawn an exchange-traded fund proposal that, if approved, would have included exposure to Bitcoin futures.
A lawyer for Reality Shares told CoinDesk: “I can confirm that we did withdraw it and it was withdrawn because the staff are still taking the position that it’s not appropriate to file a registered 40 Act fund with cryptocurrency exposure at this time.”
A similar scenario played out with VanEck SolidX’s Bitcoin Trust’s proposal, which was sent to the SEC in June 2018, where it remained “on the table” – the final decision was postponed multiple times. To avoid an adverse impact on the crypto market, CBOE withdrew its proposal.
Taking into consideration the negative outcomes in the efforts to launch Bitcoin ETF, this appears to be a long process. Perhaps crypto analyst Brian Kelly is right in saying, “No Shot for Bitcoin ETF in 2019.”
According to marketing literature uploaded to Twitter, ABN AMRO plans to offer Bitcoin storage in the same online banking environment customers use for their day-to-day activities through a product called “Wallie.” An official has confirmed that the trial was underway.
In its current form, Wallie is something of a compromise; users will not hold their private keys, while the bank says it will provide insurance guarantees for up to €6,000 worth of funds.
ABN aims to be the first to provide direct Bitcoin tools out of the major Dutch banks, beating off competition from Rabobank, which announced a similar project called “Rabobit” in February of last year.
We covered Fidelity’s moves in the crypto sphere in our December and January briefings. Now, we report that the storage component of Fidelity Digital Asset Services LLC (FDAS) is live, with some assets under management, according to what one source told CoinDesk.
In a story initially available only on its terminals, Bloomberg reported that Fidelity was aiming for a formal launch in March.
Cryptocurrency assets stolen from exchanges and scammed from investors have surged more than 400% to around $1.7 billion in 2018, according to a report from U.S.-based cybersecurity firm CipherTrace.
The volume of BTC transactions is 6X more than that of PayPal and 16.5X more than that of Western Union, according to a report by Satoshi Capital Research: “Over $3.3 trillion was sent using Bitcoin in 2018, which is more than 6X the amount sent by Paypal. BTC is not only a serious world currency but also a serious global payment system.”
A formal survey was conducted by Bitwise Asset Management, a San Francisco-based crypto hedge fund, with participation from 150 financial advisors in the US market. When asked what would make them include Bitcoin in their client portfolios, 54% financial advisors responded “better regulations,” and 35% said “the launch of an ETF.”
From the above, we surmise that the movement toward tighter regulation is not only a result of the SEC wanting to rein in the market but also reflects the conditions under which investors would be willing to commit funds to crypto.
II. Analysis Review & Market Sentiment
In the second part of our briefing, we will look at how the overall sentiment has changed and well-known crypto analysts view the market.
If you’ve been following us for some time, you are likely familiar with our technical view on BTC – that we expect to see a last drop to the $1800-2000 range before the bull trend begins again. We do not expect a sharp reversal or an unstoppable rally immediately after BTC hits bottom. Bitcoin could spend a long time trading in a wide range before the upward trend begins, but it should stop falling as soon as the major target is hit. In other words, our strategic entry point is the $1,800-2,000 area.
Before moving on to what other analysts think, I would like to share a chart that is very popular right now:
Many analysts and investors are expecting a repeat of BTC’s previous price action. In 2013-2015, the drop was about 84%; now, the drop from the $20K peak is approximately 84% again. Based on this, we might speculate that BTC might start a bullish trend mid-2019.
There are signs that investors are moving toward a more traditional commodity, according to Jan Van Eck, CEO of Van Eck Associates. “I do think that Bitcoin pulled a little bit of demand away from gold last year. Interestingly, we just polled 4,000 Bitcoin investors and their number one investment for 2019 is actually gold. So gold lost to Bitcoin in 2017, and now it’s going the other way,” Van Eck said on CNBC’s “ETF Edge.”
“Not only have we lost all liquidity on the underlying [commodity] but truly outside of the existential blockchain argument, it’s been very difficult to argue store of value which is really what we started hearing about. Gold is a store of value, and there’s no disputing that,” Tim Seymour, founder and chief investment officer of Seymour Asset Management, said on “ETF Edge.”
According to JP Morgan, Bitcoin, which stood at around $3,565, is likely to have cost support at around $2,400, and fall below $1,260 if a bear market persists. The value of cryptocurrencies is unproven, and the widely-hyped blockchain technology that grew out of them will not make any real difference to banks for at least three to five years, JP Morgan analysts said.
These comments underscored the widespread skepticism among established finance firms, while offering some relief for advocates of blockchain technology who are still waiting to see it take root.
JP Morgan said they were skeptical of the value of cryptocurrencies, suggesting the assets would only make sense in a dystopian scenario where investors lost all faith in gold, the dollar, other major reserve assets, and the global payments system. “Even in extreme scenarios such as a recession or financial crises, there are more liquid and less-complicated instruments for transacting, investing, and hedging,” they said in a report on cryptocurrencies and the blockchain.
According to Cardano founder Charles Hoskinson, “It might take 11 years for us [the crypto industry] to recover back to where we were in 2017, but we will be a dramatically different ecosystem at that point. We’ll have millions, perhaps even billions of users. We will be in many consumer products, be easy to use, [even] grandma can use it. A lot of the hard stuff will have been figured out. Like if somebody dies, how do we get their private keys, how do we handle taxes, all of the regulation will be done.”
Hoskinson compared crypto’s major growth spurt in 2017 with Amazon’s performance during the dot-com bubble. The entrepreneur, who is also the co-founder of Ethereum, noted that it took 11-12 years for the internet giant to recover its all-time highs at the peak of the bubble. He argued that, by 2011-2012, the firm was “a very much more mature company, a much more realistic company.”
Barry Silbert, CEO and founder of Digital Currency Group and Grayscale Investments, told CNBC that the majority of the once blazing-hot crypto market will be worthless eventually: “I’m not a believer in the vast majority of digital tokens and believe most will go to zero.”
Nevertheless, Silbert remains “as bullish as he has ever been” on Bitcoin. As an early investor, he lived through its multiple plunges, all of which were followed by a full recovery. Despite Bitcoin’s relatively short 10-year existence, it’s already on its third bear market plunge of 80% or more. It has yet to bounce back from the recent drop.
“As far as I’m concerned, Bitcoin has won the race to be digital gold,” Silbert said. Although Bitcoin has seen “an ugly technical chart,” he believes there’s still a high degree of interest from institutional investors. “I’m convinced that whatever money is in gold is not going to stay in gold. That gets handed down to millennials – I’m highly confident a lot of that will go into Bitcoin. There are certainly institutional investors that have put money to work, and many more are considering it. Until now, they wanted to make sure they’re not catching a falling knife.”
Zhu Fa, the co-founder of crypto mining pool Poolin, made a bullish statement on Bitcoin’s price. In a WeChat group, he predicted that Bitcoin would surge to new highs 10-20X the level it reached in the previous bull-run.
A crypto exchange in Canada lost control of at least $137 million of its customers’ assets following the sudden death of its founder, who was the only person known to have access to the offline wallet that stored the digital coins. British Columbia-based QuadrigaCX is unable to access most or all of another $53 million because it’s tied up in disputes with third parties.
The Bottom Line
This concludes our look at February’s events – we have no reason to be disappointed. Slowly but stubbornly, the whales have taken the bait, and now we can say with certainty that Bitcoin will be around for a long time.
Despite forecasts on how high and how fast Bitcoin might climb, the reality is that it all boils down to return on investment. At present, its price stands at attractive levels for long-term investment, whether $2,000 or $4,000. It’s no longer a question of whether the upside trend will begin but when.
We believe that it is too much attention on Bitcoin and the blockchain, especially from big banks and governments, to support a notion that Bitcoin is useless and on its last leg. This encourages us to remain steadfast on our strategy of being prepared to take a long-term bullish position as soon as the above-mentioned technical conditions take place.
At the Forex Peace Army, he is known as an author of Forex Military School, which quite unique free forex trading course. We do not know of any other free forex trading education covering such a broad spectrum of forex market concepts in such details while keeping it easy to understand and practically use.
As if that wasn't enough, he is the part of the Shoulders of Giants Program. He shares with his fellow traders at FPA his view and forcast of the Gold Market, Currency Market, and Crypto Market in form of weekly analytics and daily video updates.
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